Same problem happened to me some months back. Here is the cause and possible solution (in my case i could boot from DVD):
Cause: to save some disk space , i allowed windows to compress my C: drive . (rt click C drive , select properties, tick option 'compress disk contents ..'
A reboot later same problem started.
Solution: reformat of C: drive.
1. insert Windows 7 disk , go to bios and select manually optical drive as 1ST boot device.
2. restart comp. allow windows 7 setup to run.
3. after some time when windows 7 setup starts to reboot (generally after "expanding files"), go to bios and change 1st boot device as HDD( important step)
4. It should boots from HDD, and start continuing the setup. You will have NEW usable windows with this method
That should work